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* Mild weather forecast offsets storage maintenance
* Temperatures drive 1.75 pence drop on balance of week
* Fall in LNG deliveries to spur prices long-term: analyst (Updates prices, adds news and power comment)
LONDON, Feb 20 (Reuters) - British gas prices for delivery this week fell on Monday as forecasts of warm weather weighed on demand, while curve gas rose with oil after Iran halted exports to British and French companies months ahead of a European Union embargo.
Gas for Tuesday delivery fell 1.45 pence to 56.80 pence per therm in Monday trading as the onset of exceptionally mild weather looked set to dampen demand and counter the impact of the closure of the UK's biggest underground storage site, Rough, later this week.
Centrica's decision last week to shut the site coincides with peak temperatures this week, making withdrawals from storage less necessary as warm weather erodes heating demand, traders said.
"The Rough outage corresponds with peak temperatures so it shouldn't have any effect," a trader with a major European utility said.
Gas for delivery this week fell 1.75 pence, driven down by forecasts of rapidly rising temperatures, which are predicted to reach highs of 16 degrees Celsius on Thursday.
Gas for immediate delivery fell 0.40 pence at 57.60 pence as supplies ramped up over the course of the morning to meet demand. The UK gas network balanced in the afternoon as the gap between supply and demand had narrowed.
Gas producer Shell also said on Monday it would reduce output from its Bacton terminal on various dates in April, which will lead to a 11 million cubic metre per day loss in gas supply.
Further forward, the benchmark 2012 summer gas contract traded 0.20 pence higher at 56.45 pence as oil prices breached $120 a barrel following Iran's decision to pre-empt a European Union embargo on its oil exports by halting deliveries to British and French companies.
Fears of supply disruption from OPEC's second-biggest producer and upbeat economic data from the United States have kept oil prices high in the past month.
Seaborne gas shipments to the UK have seen sharp cuts in the past few months as the world's biggest producer Qatar diverts more supply to high-paying Asian markets, silencing Europe's spot market as deliveries are reduced to only contracted levels.
Analysts say that mass diversions to Asia could drive up spot prices at continental gas hubs over the long term.
"Furthermore, recent contracts for LNG by Asian buyers in Japan, Malaysia, Taiwan and Korea will divert increasing amounts of Qatari gas from the Atlantic to the Pacific market in coming years," according to Deutsche Bank.
"The net result may be that gas prices in Europe will rise from the current $8/MMBtu to the $11-12/MMBtu contract price implied by current crude oil prices," putting UK gas prices on a more competitive footing with Asia.
The UK's Met Office forecast "dry, bright and exceptionally mild" temperatures in the south of England over the next five days, with mild spells continuing through the first half of March.
Although the UK is expected to see a warmer-than-usual March, temperatures are forecast to be colder than normal in April and May, while for the rest of Europe the outlook is mixed, according to Weather Services International.
Day-ahead power prices traded slightly above market closing prices on Friday, but the outlook for power contracts was bearish in line with milder weather and the restart of one nuclear reactor on Wednesday.
Spot baseload power traded up nearly one pound at 44.85 pounds per megawatt-hour (MWh), while March baseload power slipped 35 pence at 46.15 pounds.
Supply margins could tighten next week as two nuclear reactors are scheduled to go offline.
Europe's oldest nuclear reactor, the 310-MW Oldbury 1 unit, will shut down permanently on Feb. 29, while EDF Energy's Shesham 1-2 reactor will undergo a planned routine outage from March 2. (Reporting by Oleg Vukmanovic and Karolin Schaps; Editing by Anthony Barker)